Monday, September 3, 2007

Capitalism and Democracy

Does capitalism lead to democracy? Or vice versa? Or do they go hand in hand?

The Economist guest blogger, Chris Coyne, believes that capitalism tends to lead to democracy, as he says in his post:

"To reiterate the connection between capitalism and democracy, free markets tend to foster democracy because private property, which is central to any notion of capitalism, produces a sphere of autonomy that grants each individual certain liberties. Private property disperses power and shields each person from coercion. Further, well-defined property rights tend to encourage the emergence of private civil associations. As I discussed in an earlier post, these private associations provide individuals with an alternative form of governance where the state is ineffective or absent. A robust civil society fosters self-reliance and individual responsibility, characteristics necessary for any liberal democratic order."

However, he also points to the importance of having a set of game rules to deter unproductive activities like rent-seeking, corruption and crime:

"The sustainability and progress of economic, political and social liberties are outcomes of two opposing forces. On the one hand, there are “productive” activities, including wealth creation, the development of private associations and the protection of political liberties. On the other hand, there are “unproductive” activities, which include rent-seeking, corruption and crime. Unproductive activities undermine economic, political and social liberties. The ultimate outcome of these two forces is directly dependent on the rules of the game. To the extent that we agree that economic and political liberties are desirable ends, the task is to design rules that raise the relative cost of engaging in unproductive and predatory behaviors."

There are also interesting comments on his post. The debate goes on and on ....

Perhaps somewhere in that ongoing debate there lie some lessons that Hong Kong and China can learn.

4 comments:

I have never been completely convinced by this argument. Try taking an extreme position to test it:

In a perfect democracy, where a majority have the mandate, the minority essentially have no legitimacy. In this scenario individual rights (inherently linked to capitalism) are essentially very limited.

Put in this perspective, the bonds between capitalism and democracy and tenuous, at best.